UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES ACT OF 1933

Release No. 7536 / May 5, 1998

ADMINISTRATIVE PROCEEDING

File No. 3-9542

In the Matter of

COUNTY OF NEVADA, CITY OF IONE, WASCO PUBLIC FINANCING AUTHORITY, VIRGINIA HORLER, and WILLIAM MCKAY

Respondents.

ORDER MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER

I.

The Securities and Exchange Commission ("Commission") has previously instituted a cease-and-desist proceeding pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against the Wasco Public Financing Authority ("Wasco PFA"). 1 The Wasco PFA subsequently has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.

II.

Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except that the Wasco PFA admits the jurisdiction of the Commission over it and over the subject matter of this proceeding, the Wasco PFA consents to the issuance of this Order Making Findings and Imposing a Cease-and-Desist Order ("Order") and to the entry of the findings and the imposition of the relief set forth below.

III.

On the basis of this Order and the Wasco PFAs Offer, the Commission finds 2 the following:

A. RESPONDENT

Wasco Public Financing Authority is a public financing authority formed by a joint powers agreement between the City of Wasco and the Wasco Redevelopment Agency. The City of Wasco is a political division and legal subdivision of the State of California invested with corporate powers. It is located in California's Central Valley, 275 miles south of San Francisco, and has a non-prisoner population of approximately 10,000. The City of Wasco is governed by an elected City Council whose members also serve as the directors of the Wasco PFA Authority and the Wasco Redevelopment Agency.

B. BACKGROUND

The California Marks-Roos Local Bond Pool Act of 1985 ("Marks-Roos Act") 3 permits municipalities to organize "public financing authorities" ("PFAs") that sell bonds to the general public in order to create pools of monies which are, in turn, used to buy bonds, notes and other obligations of other public entities ("local obligations"). Marks-Roos bonds are payable from the principal and interest of the local obligations purchased with the pool's proceeds.

Funds raised in a Marks-Roos offering must be used within a certain amount of time to purchase local obligations. Under Section 149(f) of the Internal Revenue Code, a pooled financing is tax exempt only if the issuer reasonably expects that 95 percent of the net proceeds of the bond pool will be used within three years of the date of issuance. For this reason, bond pools generally require that all funds not applied within three years of issuance be returned to investors. The Wasco PFA Indenture of Trust ("Indenture") contained a three-year limitation ("the origination period") on the placement of funds and required that all funds not used within the origination period be repaid to investors.

C. FACTS

On September 20, 1989, the Wasco PFA issued $35 million of its 1989 Local Agency Bonds pursuant to the Marks-Roos Act. The Wasco PFA offered and sold its bonds by means of an Official Statement. The Board of Directors for the Wasco PFA approved the Official Statement. The Official Statement (which contained a summary of the Indenture and advised investors to refer to the full Indenture) represented that the Wasco PFA anticipated using the offering's proceeds to purchase certain local obligations described in the Official Statement. These local obligations were typically identified as proposed development projects to be undertaken by area developers. However, the Official Statement failed to disclose the tentative nature of certain projects identified in the Official Statement.

The Official Statement represented that the Wasco PFA intended to finance the purchase by the Delano Regional Medical Center ("the Delano RMC") of an existing facility in Wasco with $1.2 million in bond funds. The Official Statement failed to disclose that while the Delano RMC and the city were engaged in negotiations, no agreement had yet been reached to purchase the facility. Negotiations broke off after the bonds were issued. The Delano RMC did not purchase the facility.

The Official Statement represented that $1.125 million of funds were intended to be used to finance the "Johnson Housing Project Infrastructure" and that construction of the infrastructure for a mobile home park was expected to commence in late 1989. At the time the Official Statement was disseminated, however, no maps, permits or financing for the mobile home park existed. The park was not constructed.

The Official Statement listed the $2.075 million "Wasco Civic/Recreation Center" as a project the Wasco PFA intended to finance. While the city had considered the idea of a building a civic center for many years, it had completed virtually none of the planning required to proceed with such a development. For example, no site had been selected for the project. The civic center was not constructed.

The Official Statement also disclosed that $4.0 million of funds were intended to finance the construction of 100 units of low-income housing, called the "Housing Authority Multi-family Housing Project." While the Official Statement represented that the Housing Authority "is in the process of taking the necessary steps to start construction," no approvals, sites, plans or matching funds had yet been obtained. The project was not constructed.

The Wasco PFA created the appearance that the bond proceeds would be fully subscribed within the origination period. In fact, by the end of the origination period, the Wasco PFA had applied only about fifteen percent of the funds to the local obligations described in the Official Statement. Instead of funding other local projects over that three-year period, the Wasco PFA purchased more than $9 million in bonds from the underwriter for various projects not related to the Wasco community.

D. LEGAL ANALYSIS

Section 17(a) of the Securities Act generally prohibits misrepresentations or omissions of material facts in the offer or sale of securities. Scienter is not required to establish a violation of Section 17(a)(2) or Section 17(a)(3) of the Securities Act. Aaron v. SEC, 446 U.S. 680, 702 (1980).

While offering and selling its bonds to the public, the Wasco PFA represented that it intended and reasonably expected to finance twelve specific local obligations with the proceeds of its offering. These statements were false and misleading in light of the tentative nature of certain projects.

These misrepresentations were material to investors because they directly addressed the use of the offering's proceeds. The misrepresentations significantly altered the total mix of information available to the investors.

The misrepresentations were "in the offer or sale" of the Wasco PFA bonds. All were designed to induce investors to purchase the bonds. There was a causal nexus between the statements made and the investors' decisions to buy the bonds.

Despite its retention of professional advisers, the Wasco PFA remained legally responsible for any misrepresentations and/or omissions in the Official Statement. The Wasco PFA Board of Directors, who also sat on the City of Wasco City Council, approved the Official Statement.

IV.

Based on the foregoing, the Commission finds that the Wasco PFA committed violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act.

V.

Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act, that the Wasco PFA cease and desist from committing or causing any violation and any future violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act.